You’ve been saving money in your 401K for most of your adult life. Now that you’re retiring, what happens to that money? Join us in discussion with financial expert Pam Krueger who says that taking control of your money in retirement is as easy as 1-2-3. Enjoy the show!

At the end of a wonderful career, there’s excitement in knowing that a healthy nest egg has been built up and is resting cozily in a 401K. What you decide to do with it upon retirement is extremely important.

Don’t Take the Check

Whether you have one 401K or multiple 401Ks, upon retirement you’re going to want to roll it all over into your own individual retirement account (IRA). How you go about doing that is what matters most.

Shortly before your retirement becomes official, your employer will ask if you want them to write you a check for the amount in your 401K. That can sound very tempting as everyone enjoys having that kind of cash in their hand, but it’s a fatal mistake.

If you take that check, you will lose 20% in penalties. There will be a 20% mandatory withdrawal. You will also have only 60 days to deposit that check in a new IRA.

Avoid the Penalties

What you want to do instead is to ask your employer to do a trustee-to-trustee transfer. This way you avoid the fees and the hassle of only having 60 days to get that money deposited into an IRA.

What’s important here is that after retirement, you are responsible for your money now. You decide where it goes and how it is invested. This may sound scary to some women, but the bottom line is that nobody else is as vested in your financial interests as you are.

Making Informed Decisions

At this point you will have a few options. First, you will want to shop around at Vanguard or other discount brokers and decide which broker you want to use.

Second, you’ll get to decide if you want to transfer your funds to a traditional IRA or a Roth IRA. In a traditional IRA, your money goes in before taxes and the money that you would have paid in taxes gets invested instead. In this way, that money is working for you. However, when you’re ready to start taking money out of that account, you will have to pay taxes on it then.

In a Roth IRA, the money going in has already been taxed. When you’re ready to take money out, you’ll be able to do so free and clear of any taxes. You get to decide what type of IRA is best for you based on when you think you might be in the highest tax bracket. You’re in charge and you get to make the decision.

Once you’ve rolled your money into that IRA, you get to decide what you want to do with it. With the help of a good fiduciary advisor, you can decide if you want to keep the investments you already have or if you want to diversify.

Pam says there are many easy plug-and-play portfolios available that make diversifying into the right allocations of stock, bonds, and cash easy. There’s no need to take big risks or challenge yourself financially. You just want to make that money last for the rest of your life.

The Bottom Line

In the end, the money is yours. So, don’t take the check. Ask for a trustee-to-trustee transfer. And take charge of your finances. Get a fiduciary advisor to help you make your money work for you.

Have you ever rolled a 401K into an IRA? Were you aware of the differences between a traditional IRA and a Roth IRA? Share your advice and experiences with us and join in our conversation!